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Knowledge Base

Identifying Smart Climate Change Policies

Do you believe that climate change is real? How can we have a productive discussion on climate change that focuses on policy proposals instead of whether the Earth is warming?

If the conversation gets stuck on whether or not the Earth is warming, then we can't judge the efficacy of any policies that attempt to adapt or remedy climate change.

Both sides can prosper with this approach. If you support the idea that climate change is real and argue only that point, then you do your side a disservice by not helping to identify the best possible remedies for the problem. If you believe that climate change is not real, then by arguing only that, you are leaving open the possibility that if it is real, then the various proposals advocated by that side should be implemented.

A more prudent approach is to focus on the economic costs and benefits of each proposed policy and figure out which ones offer net benefits. Even if a policy is intended to combat climate change, that doesn't mean it is the most cost-effective way to do so. Many policies do not pass simple cost/benefit tests and should be discarded in favor of other uses of our scarce resources.

How do you actually measure the costs or benefits of climate change? How can you get a handle on the order of magnitude of the cost of climate change?

Any harm or benefit due to climate change can be aggregated to a level of GDP or income, either at the country or world level. This allows us to talk in terms of percentage of GDP or income over the long run. If, for example, climate change is responsible for annual damages of $1 billion and a country's GDP is $100 billion, then we can say that the effect is 1% of GDP.

William Nordhaus and Andrew Moffat have an NBER working paper (here) that surveys the estimates from numerous studies.

If climate change is uncertain, shouldn't we act to hedge against that uncertainty? Isn't the downside probably enough of a possibility that we should act no matter what?

Uncertainty is already built into the models of costs and benefits. When you make an expected value calculation, you assign probabilities to the estimated costs and benefits. Estimates of the future cost of climate change typically range from 2% to 4% of world income, although a handful include costs of up to 10%. That number includes small probabilities at either tail of possible futures, positive and negative.

No matter your view on climate change, there is certainly a lower bound where it is not worth sacrificing current resources in order to prevent one possible future, just as there is an upper bound where even those most skeptical of climate change should advocate mitigation. It is also worth keeping in mind that regardless of what percent of future world income it is, it is a world with much higher real incomes overall. Future generations are going to be much wealthier than we are now, even accounting for the possibility of negative effects from climate change.

Are there measures we could take to limit global warming that are good ideas in themselves, even if the globe doesn't end up getting much warmer? What might some of these measures be?

Yes. Regulatory requirements to use ethanol in gasoline, for example, though originally justified in part on grounds of reducing global warming, do not do so. But they do make food more expensive and they do destroy engines in lawn mowers and parts of older cars. So, whether or not global warming is happening, requirements for ethanol in gasoline should be eliminated.

Can we reduce or at least limit greenhouse gas emissions without seriously sacrificing economic growth or increases in our standard of living?

It is certainly possible. There is a tension between using resources now and saving them for the future. By reducing our carbon use today, we may improve the standard of living of people in the future. But we also may make the future standard of living lower than otherwise.

Moreover, if we don't do much about climate change now, we will have slightly however economic growth, and that will give us more resources to use to adapt to climate change in the future and/or to combat climate change in the future.

How much climate change is acceptable, and how much is too much? How would we decide that?

The short answer is the level that provides an acceptable balance between future well-being and present well-being.

Most people are willing to sacrifice some of their current well-being in order to improve their future well-being. After all, we save for retirement, plan for future expenses, and exercise to live longer and healthier lives. But at some point, it's worth it to spend your resources now. That balance is a calculation that isn't as central as it should be to the climate change discussion.